What creates jobs?

There were a few recent financial crises. The subprime mortgage. Bailouts of large companies by (American) government. The sovereign debt in Europe.

I thought we were past the worst of things. The economy seems to be recovering, if not already recovering (I’m not an economist). Then I saw this wonderful ad.

Ideal job ad

Jobs are in short supply globally. I just thought Singapore would have weathered this gracefully. But then that advertisement came up recently, so perhaps Singapore had a delayed reaction.

Governments don’t create jobs

I respect every civil servant out there. You should also be aware that their salary comes from taxes. Where else would the government get their money from? (There are probably foreign investments and donations and whatnot, but I presume the majority would be from taxes).

By that logic, hiring more government staff generally means higher or more taxes. If I’m wrong, please leave a comment.

For the purposes of discussion, I would include military forces as part of the government. The military is what businesses call a “cost centre”, meaning it doesn’t bring in revenue directly but costs something to maintain. Well, ok, the military can sell weapons and security technology. But mainly, the military just eats up money.

I am probably offending politicians and military officers left and right here… Go read something else then.

IT departments are usually considered cost centres (well, they were in my previous company). Unless your company is a software company, then your software department making your software products becomes your main cash generating department.

Big companies don’t create jobs

The recent waves of financial downturns, together with globalisation, have kept big companies on their toes. Cost cutting can only go so far.

The reason big companies are big is not because they hire a lot of people (that might have been true in the past), but because they can scale up quickly. They have the infrastructure and people in place. However, that scaling ability comes at a cost. Maintaining the status quo requires money too.

To remain competitive in these current times, there have been mergers and acquisitions. If your company buys up an IT company, your company no longer really needs an internal IT department. Staff from the original internal IT department and the recently bought IT company will be combined, and as expected, people will be let go due to job/task redundancy.

So big companies are not going to be creating many jobs because they’re busy trying to get their costs and profit margins in order in this increasingly chaotic (relatively speaking) economic environment.

Small companies don’t create jobs

Small companies have their own problems too. I will include startups in this. The main problem, in direct contrast to big companies, is scale. Although that can be overcome with some creativity and especially with the Internet.

There was once I applied for a job at a small startup here in Singapore. I asked a friend who was already working there. I was willing to be an unpaid intern. I didn’t get a reply. Either my “friend” didn’t put it up to the founder for consideration, or my “friend” was afraid I’d steal jobs. In this case, small companies are small because they have a small number of staff.

So while existing small companies might not create enough jobs to make a difference, new small companies will still create jobs. Which brings us to the next point…

Entrepreneurs (might) not create jobs

Well, entrepreneurs create companies, right? They usually start small, so they create jobs. Right?

I guess.

My definition of “entrepreneur” comes from the dictionary, which is “one who takes on risks of a business or enterprise”. Based on that, I consider myself an entrepreneur. I run a business selling software that I wrote. I assume the risks of a business. By definition, I’m an entrepreneur.

But I don’t hire anybody. I outsource some of my tasks (usually design work), but the only job I’ve created is custom made for me. And I’m filling it right now.

And typically, for those pursuing “lifestyle businesses”, they don’t hire a lot of people too. They usually outsource, and even if they do hire staff, it’s probably 2 to 5 people.

Not quite the 50 to 500 staff for small companies, huh?

So, what does create jobs?

Customers create jobs

I can’t remember who said this. Basically, a job exists when someone is willing to pay for something, and then pays it. When you have customers, you create jobs.

A customer wants a latte. Someone has to grow, harvest, transport, and grind the coffee beans. Someone has to milk a cow. Someone has to brew that coffee. Someone has to take the money from the customer.

Your customer wants a monthly report on how much money he’s making. He doesn’t want to learn how to write SQL statements to grab information from his database. That’s what you’re for.

On the most basic level, it’s about cash flow. A job exists to facilitate the transfer of money from the customer to you. If you’re an employee, then the money goes to your company, who then pays you.

So if you want to find a job, find out how to create customers for the company you’re interested in.

  1. Jay Johnson

    If customers create jobs, is it the logical conclusion that we should lower taxes so that they can ‘create’ more of them?

    The ‘customers create jobs’ idea is interesting in juxstaposition to a quote from management guru Peter Drucker – ‘The purpose of a company is to create (and keep) a customer.’ From that context are the two a chicken-and-the-egg paradox or both part of an overarching cycle?

    Thanks for the thought-provoking post.

  2. Vincent

    I don’t know if lower taxes equals more jobs. But from what I’ve read, the government and taxes are a necessity for the economy. The government needs to be present to make sure the country (and its economy) runs smoothly, and taxes are required for the government to exist. However, the government also needs to stay out of the way so businesses can flourish. Trade protectionism is a bad idea.

    The paradox is solved by companies taking a risk. That’s why businesses are considered “risky”. You form a business around a product/service that you believe people will pay for. You invest time, money and energy. If people pay for your product/service, you have customers. This means you create jobs first, and then see how to create customers, and then you continue the cycle.

    The “risk” is lower for people like Peter Drucker because they make sure their efforts have a high chance of succeeding.

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